13 hours ago
More Startup Funding Under U.K. Industrial Plan
Leandros Kalisperas, Chief Investment Officer, British Business bank says the investment outlook is ... More positive
More public money is to be invested in startups and scaleups as part of the U.K. government's 'Modern Industrial Strategy,' which was unveiled this week. Under the plan, the publicly funded British Business Bank is to commit £4.0 billion of new capital to early-stage companies working in eight sectors identified as crucial to future economic prosperity. Meanwhile, an additional £2.6 billion will be available to promising startups across all industries.
Coinciding with the publication of the strategy document, the British Business Bank (BBB) has released its own research into investment patterns in 2024. The data shows that while private investment flooded into AI startups and scaleups last year, the U.K. trailed the U.S. in key sectors such as advanced manufacturing and life sciences. Thus, if Britain is to become a science-led superpower, then there is some catching up to do.
So, how does the British Business Bank see the investment outlook for Britain's technology startups, and what part will the institution play in supporting companies that have the potential to become global leaders? To find out, I spoke to Leandros Kalisperas and Matt Adey, respectively, Chief Investment Officer and Senior Economist at the BBB.
The bank's report presents a mixed picture of the investment landscape. On the debit side, funding declined by 2.0% to £10.8 billion while the number of deals fell by a much larger 15% to 2,048.
However, Kalisperas says, those figures have to be seen in context. 'Overall, it's positive,' he says. The value of deals was still the fifth highest on record.'
And as he points out, for those companies that successfully raised capital, deal sizes were on average larger. 'There was a small decline in percentage terms and a slightly higher decline in deal numbers. That means companies that are getting finance are getting more finance,' he adds.
AI Leads The Way
Perhaps not surprisingly, companies operating in the artificial intelligence space did particularly well in 2024. According to the report, AI-related deals averaged £8 million, 40% higher than the average in other sectors. This aligns neatly with the desire of policymakers to establish the U.K. as a leader in the field. 'AI is a growth priority, " says Kalisperas.
University spinouts also had a good year, collectively raising almost £2 billion. Again, this ties in neatly with the Industrial Strategy's aim of improving and accelerating the commercialisation of university research, something that the U.K. has not always done well.
'We do think this is absolutely critical given Britain's standing in the world. Commercialisation is the challenge, but the numbers speak for themselves in terms of the growth of that,' says Matt Adey.
Regions See More Investment
As Kalisperas sees it, rising investment in spinouts goes hand in hand with another theme of the report. Investment in Britain's regions is rising, a trend that is seeing London's share of the overall pot fall to 61%. This, he says, speaks to the success of companies emerging from university towns and cities outside London - and not just in and around Oxford and Cambridge.
'We talk about the golden triangle (Oxford, Cambridge, London) , but we are also seeing the development of the Northern Arc,' he says.
The eagerness of universities to spin out science-led companies is, to some extent, being matched by local investment trends. Angels are crucially important because they have a local presence and can spot the emergence of promising companies. There are also increasing numbers of VCs working locally. Kalisperas cites the example of Northern Gritstone, a fund specializing in science investment in the North of England.
Filling Funding Gaps
All of which bodes well for investment in sectors identified by the Industrial Strategy, but there are investment shortfalls. For instance, the report notes that advanced manufacturing and life sciences are both underfunded when compared to investment levels in the U.S.
'When you adjust for the size of the economy, we are behind the US. But we have some successful businesses, so we are building from a strong base. But we do need to get closer to the U.S. funding levels,' says Matt Adey. However, as he stresses, the U.K. is ahead in clean energy and financial technology.
That's where the BBB has an opportunity to play a key role in directing investment at strategically important industries. 'The Bank will get considerably more financial power. It is likel that we will be tasked with dealoing those gaps robustly,' says Kalisperas.
It would be wrong to suggest that the Modern Industrial Strategy is all about startups. The plan includes cheaper electricity prices for businesses, cheaper and faster grid connection to the power grid, measures to boost exports and more defence spending. There will also be increased investment in quantum computing through a £670 million funding package and five progams to increase the use of AI in the services sector
The initiative also sees the government putting more emphasis on promoting growth and innovation in the regions, a development welcomed by Aline Miller, Academic Innovation Lead at Manchester innovation district, Sister. 'This strategic pivot - placing greater emphasis on regional strengths outside the Golden Triangle - marks a needed shift towards a more balanced, inclusive model of national growth,' she said.
Meanwhile, the enhanced financial power given to the BBB as part of the financial Strategy will give the bank a greater role in providing strategic funding across all the key sectors, such as life sciences, defence, digital technology and clean energy.
